Correlation Between BMO MSCI and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and IShares MSCI at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BMO MSCI and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO MSCI EAFE and iShares MSCI Min, you can compare the effects of market volatilities on BMO MSCI and IShares MSCI and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BMO MSCI with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and IShares MSCI.
Diversification Opportunities for BMO MSCI and IShares MSCI
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BMO and IShares is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and iShares MSCI Min in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Min and BMO MSCI is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BMO MSCI EAFE are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Min has no effect on the direction of BMO MSCI i.e., BMO MSCI and IShares MSCI go up and down completely randomly.
Pair Corralation between BMO MSCI and IShares MSCI
Assuming the 90 days trading horizon BMO MSCI EAFE is expected to generate 1.23 times more return on investment than IShares MSCI. However, BMO MSCI is 1.23 times more volatile than iShares MSCI Min. It trades about 0.11 of its potential returns per unit of risk. iShares MSCI Min is currently generating about 0.12 per unit of risk. If you would invest 2,440 in BMO MSCI EAFE on August 26, 2024 and sell it today you would earn a total of 527.00 from holding BMO MSCI EAFE or generate 21.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI EAFE vs. iShares MSCI Min
Performance |
| Timeline |
| BMO MSCI EAFE |
| iShares MSCI Min |
BMO MSCI and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and IShares MSCI
The main advantage of trading using opposite BMO MSCI and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, IShares MSCI can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares MSCI will offset losses from the drop in IShares MSCI's long position.| BMO MSCI vs. iShares Core MSCI | BMO MSCI vs. Vanguard FTSE Developed | BMO MSCI vs. iShares MSCI EAFE | BMO MSCI vs. BMO Low Volatility |
| IShares MSCI vs. iShares Core MSCI | IShares MSCI vs. Vanguard FTSE Developed | IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. BMO MSCI EAFE |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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